How Does Student Loan Debt Affect Your Credit?

Can student loans lower your credit scores? Well, yes—but how much depends largely on how you handle those debts. One thing’s for sure: the amount of student loan debt owed has increased pretty dramatically in just the last seven years.

New figures from FICO show that the average student loan debt since 2005 has increased 54%–from $17,236 to $26,549. And the number of consumers with two or more open student loans on their credit report doubled in the same time, from 6 percent in 2005 to 12 percent now.

The increase in loan debt, by itself, doesn’t necessarily affect the credit scores of those who are carrying it.

How is Student Loan Debt Treated by Credit Bureaus?

Student loan debt is treated on your credit reports and scores as an “installment loan”. That is to say, a specific loan that’s been structured over a period of time. Whether it’s a government loan or a private loan also doesn’t matter.

The important thing is whether or not it’s paid-off on time, within the agreed-upon framework.

These kinds of debts are weighed less heavily than, say, credit card debt. This is where you might’ve heard the terms “good debt” and “bed debt.” Basically, student loan debt is good debt—it’s an investment in your future. With the money you’ve taken out to pay for education, ideally, you’ve increased your capacity for higher earnings over coming years.

What interests the credit bureaus most are your payment habits—not that you have debt, but how you manage the debt you have.

Of course, defaulting on a student loan will appear on your credit report—and stay there—for seven long years. Student loan payments that have gone unpaid for 270 days are considered to be in default. However, it is possible to make arrangements with lenders to avoid this. With that said, loans offered through the Department of Education cannot be deferred, so on-time payment is crucial.

Ultimately, just like everything else relating to your credit, you want to demonstrate your trustworthiness and reliability. Don’t be afraid of improving yourself with a student loan, but make sure you’re ready to keep up with the payments as they come due.